Key points
- Arista's revenue rose 58.5%, its fastest growth since its IPO
- Arista's fourth-quarter forecast tops analyst estimates
- Arista forecasts 38% to 40% revenue growth in 2027
Arista Networks (ANET) reported third-quarter revenue of $3.66 billion on November 3, up 58.5% from a year earlier and above the $3.33 billion analysts expected, according to Investing.com. Adjusted earnings were $1.20 a share, beating the $1.08 estimate. Arista said it was its fastest growth since its IPO, according to its earnings release.
For the fourth quarter, Arista forecast revenue of $3.9 billion to $4.0 billion, above the $3.6 billion analysts expected. It sees adjusted earnings of $1.26 to $1.30 a share, compared with the $1.15 estimate. Shares were at $190.35 in after-hours trading as of 5:44 p.m. ET, up about 12.0% from their last regular-session trade of $169.90.
On Arista's earnings call, Jayshree Ullal, the chairperson and CEO, gave a first look at 2027. Arista expects revenue to grow 38% to 40%, to about $18.5 billion. Ullal said AI networking should double to about $7 billion and campus revenue should grow 60% to about $2 billion. Arista also raised its 2026 forecast for the fourth time, to about $13.3 billion, up 48%.
How far did Arista beat its own forecast?
In August, Arista forecast third-quarter revenue of about $3.3 billion and adjusted earnings of $1.06 to $1.08 a share. Revenue came in about $358 million above that forecast, by our calculations.
At the midpoint, the new forecast of $3.95 billion would be about 8% more than the third quarter. Revenue grew 20.5% from the second quarter to the third.
"Arista registered another momentous quarter with the highest year-over-year revenue growth since our IPO and record profitability, surpassing even my high expectations," Ullal said in the release.
How profitable was the quarter?
Arista’s adjusted gross margin, the share of sales left after direct costs, was 64.0%, up from 63.4% in the second quarter but down from 65.2% a year earlier. Its adjusted operating margin was 49.1%, just above the 48% to 49% range it had forecast. Arista expects an adjusted operating margin in that same range for the fourth quarter.
On the call, Chantelle Breithaupt, Arista's chief financial officer, said supply chain efficiency partly offset product cost inflation from a year earlier, and that the rise from the second quarter came from customer mix. She forecast gross margin of 63% to 64% for the fourth quarter and 62% to 64% for 2027, with operating margin near 49% in 2027.
Net income under standard accounting rose to $1.56 billion from $853 million a year earlier. Standard earnings were $1.22 a share, slightly above the $1.20 adjusted figure. One reason was a $134.5 million gain on strategic investments, which was included in the standard result but excluded from adjusted earnings.
Why does deferred revenue matter?
Deferred revenue represents customer billings that Arista hasn’t yet recognized as revenue. Investors watch it for a glimpse of revenue still to come.
The balance was $6.84 billion at the end of September, down about $26 million from June but up from $5.37 billion at the end of December, by our calculations.
The small quarterly dip doesn’t by itself signal slowing demand. Deferred revenue falls as earlier billings are recognized and rises with new billings, so a strong sales quarter can pull the balance down. Breithaupt said on the call that the balance "can move significantly on a quarterly basis, independent of underlying business drivers." She said product deferred revenue fell $86 million, and that customer-specific acceptance terms on new products have made it more volatile.
Inventory rose to $3.21 billion from $2.54 billion at the end of June, which Breithaupt called an intentional build to meet customer demand. Purchase commitments rose to $11.4 billion from $9.7 billion. She said they now include a multi-year memory agreement and could rise a little more in the fourth quarter. Arista ended September with $14.36 billion in cash and marketable securities.
What else did Arista announce?
Arista said it worked with AMD (AMD), Arm (ARM), Broadcom (AVGO), d-Matrix, Meta (META), Microsoft (MSFT), and Qualcomm (QCOM) on new rack-scale designs for AI networks based on open standards. AMD reported its own results the same day and forecast about $17 billion in fourth-quarter revenue.
Arista also joined the S&P 100 in September.
"This quarter brought a true trifecta for our company, setting new record highs in revenue growth, net income, and EPS," Breithaupt said in the release.
